McCain's Mortgage Plan: Another Desperate, Dangerous Gimmick

Other than one by the United Lobbyists' Collective of K Street, every poll, survey and focus group showed that Obama handily beat McCain in the debate on Tuesday. The only other "news" from that event was that McCain, desperately groping for a "game-changer," threw out a proposal for the federal government to buy every badly performing mortgage from the banks. While his far right extremist base screamed bloody murder, mainstream Americans scratched their collective heads and asked what the hell is McCain talking about.

This morning the editors of Republican Party propaganda tabloid, National Review, echoed what their columnists have been writing all week, that McCain's proposal is unacceptable to conservatives. They prefer the bill written by Barney Frank and Chris Dodd, because under their bill the borrower must live in his house (i.e., no investment properties); the borrower must show that he has been spending at least a third of his income on mortgage payments since March of this year; and the borrower must also show that he can afford to make lower payments if his lender agrees to a write-down. They estimate that these rules narrow the mortgages covered to 400,000 and "excludes people who borrowed to buy investment properties in order to flip them for a profit... excludes people who are hopelessly in over their heads and simply cannot afford the homes they’re in and... excludes people who could afford to pay their mortgages if they wanted to but have instead decided to mail the keys to the bank rather than continue making payments on a house that is worth less today than when they bought it."

We never thought we would defend the Frank-Dodd legislation, which we bitterly opposed last summer. But it looks downright prudent compared to what McCain has proposed. McCain’s plan is a full bailout for lenders, and it cannot do much more than the Frank-Dodd bill without letting “ruthless borrowers” and other reckless types off the hook. It is time to acknowledge that the government has gone as far as it can without creating a level of moral hazard that is unacceptable. Give Frank-Dodd-- and the Paulson plan-- time to work.

And that's from McCain's base! Economists and editorial boards around the country looked at it and decided it was just another McCain Hail Mary pass or cynical gimmick, like picking Sarah Palin, like making believe he was suspending his campaign to "rush" to Washington and save the day, like shortening the Republican Convention by making believe he was needed in New Orleans, etc. Robert Farley looked it over for the St Petersburg Times and explained why people are calling it "a desperate campaign stunt by a candidate who's popularity in polls is dropping largely due to people concerned about the economy. The plan is likely to be a tough sell to McCain's conservative base, many of whom are uncomfortable with the whole bailout plan to begin with. "It creates a big moral hazard," said Daniel Mitchell, a senior fellow at the Cato Institute, a libertarian think tank. "If I thought McCain was going to be elected, I'd stop paying my mortgage now and stick my nose in the trough."

The Concord Monitor points out that McCain is once again helping all his campaign contributors but not American taxpayers: "McCain's plan would bail out homeowners who can't meet their payments and foundering lenders, who bet that home values would continue inflating forever. But it would saddle taxpayers, many of whom struggle to pay their own bills, with an enormous burden."

Even McCain's cronies on the editorial board of the aggressively reactionary Wall Street Journal say there's no upside for taxpayers in his proposal: "McCain's obvious political intention is to show struggling homeowners that he cares. Perhaps the best argument for the McCain idea is that it is likely to be far less expensive than the Second New Deal that Barack Obama is likely to propose on January 20 if he wins. But Mr. McCain's plan to transform Treasury into a major mortgage lender, and running the operation at a potential $300 billion loss, raises more questions than it answers... And unlike the Paulson plan, the McCain proposal appears to offer no upside for taxpayers. They take all the losses up front and don't participate in any rebound in house prices, so borrowers who overextended and lenders who made reckless loans are made whole, and taxpayers get the bill."

Even more discerning analysis comes from Paul Krugman who pointed out that "McCain's bailout plan manages to take everything that's wrong with the Paulson plan and make it worse" and CNNMoney.com has an analysis that McCain's crooked lobbyist cadre isn't going to embrace:

McCain Mortgage Plan Shifts Costs To Taxpayers: Under McCain's newly announced plan, the government would take the hit for writing down mortgage balances for at risk borrowers: Under a mortgage rescue plan announced at the debate Tuesday night by Senator John McCain, much of the burden of paying to keep troubled borrowers in their homes will shift to taxpayers… "[McCain's] original plan relied on lenders taking the hit," said Holtz-Eakin. "This bypasses that step." Instead, taxpayers pay for it, with the funding already provided by the $700 billion bailout bill. That could prove to be very unpopular with homeowners who aren't in trouble, as well as ordinary Americans who objected to the Hope for Homeowners plan as a bailout for delinquent borrowers and irresponsible lenders. Christopher Mayer, Paul Milstein Professor of Real Estate at Columbia Business School, isn't convinced that the McCain proposal makes sense. "As the plan stands now, it helps the people who got into the most debt, and it helps the lenders, but it doesn't really help the housing market," he said.

The NY Daily News says it's a giveaway to the banks: "Out of the blue, McCain has just proposed a large, no-strings-attached gift of taxpayer cash to bank executives who failed at their business of risk management, and to bank shareholders who failed at their business of hiring executives. That's simply corrupt." And Victoria McGrane at Politico sums up the mood of everyone who's read it: half-baked. A careful examination was done by the Obama campaign's Economic Policy Director, Jason Furman in you want to really get down into the weeds with this thing which is probably very much DOA.